Marico’s Q2FY2022 performance was largely inline with expectations, with revenue growing by 20%+, while sustained raw-material inflation led to 7% growth in reported PAT. Volume growth of India business came in at 8%. Parachute portfolio registered y-o-y growth of 18% and VAHO portfolio reported y-o-y growth of 16%. Saffola’s revenue growth came in at 46% (entirely price-led growth) for the quarter. The international business grew by 13% (CC growth) during the quarter on account of 16% and 20% (constant currency) growth in Bangladesh and MENA region, respectively. About 90% of the company’s product portfolio gained market share during the quarter. Management has maintained its thrust on achieving mid-teen revenue growth in the medium term with OPM of about 19% in the medium term.
Gaining market share in the core domestic portfolio through new launches, scaling up the food business, and improving growth prospects in countries such as Bangladesh and Vietnam are some of the key growth levers for Marico in the near to medium term. Inflationary trends are receding and OPM is expected to see improvement from Q4FY2022. We have introduced FY2024 estimates in this note. The stock is currently trading at 45.3x/40.5x its FY2023E/FY2024E earnings. We like the company’s focus on de-risking its business model by premiumisation of the core, expansion of foods portfolio, scaling up digital brands, and cost management. We maintain our Buy recommendation on the stock with a revised price target (PT) of Rs. 645.
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